A view of Greece from the Outside - Commentaries and Opinions
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Thursday, April 17, 2014
Foreigners Transfer Money to Greece and Greeks Transfer it Abroad --- Strange!
"January-February 2014: Under portfolio investment, a net outflow of €2.7
billion was recorded, mainly as a result of a rise in residents’ investment in
foreign Treasury bills and a decline in non-residents’ holdings of Greek
government bonds and Treasury bills. This development was partly offset by an
inflow for the purchase of Greek shares by non-residents, as well as by a
decrease in residents’ holdings of foreign bonds.Under “other” investment, a net inflow of €2.7
billion was recorded, mainly due to non-residents’ increased holdings of Greek
deposits and repos" - Press Release Bank of Greece.
This is a curious statement by the Bank of Greece because one could interpret it as meaning that, while Greeks are smart to put their money outside the country, foreigners are dumb and put it into Greece.
Here is how portfolio investments work: suppose you have 10 TEUR on deposit with Eurobank. One day, you go to your local Eurobank branch, where you also have a portfolio account, and ask that they take your 10 TEUR from the deposit account, buy German bonds for 10 TEUR and put them in your portfolio account. You may think that your money is still with your local Eurobank branch but it isn't! Eurobank has, on your behalf, transferrred the money abroad to buy German bonds. If Eurobank goes bust and/or if Greece exits the Euro, it does not concern you. You still own German bonds denominated in Euros. They just happen to be held in a portfolio account at your local Eurobank branch and the assets in that account are your property and not the bank's.
Footnote: from 2011-2013, Greek residents did the above to the tune of more than 50 BEUR. They did not transfer money to any Swiss bank account. Instead, they simply moved money from a deposit account to a portfolio account at a Greek bank. This little trick made them immune against any bank bankruptcy or Grexit.
From January-February 2014, Greek residents moved 2,7 BEUR from their deposit to their portfolio accounts at Greek banks. Put differently, they transferred money abroad, possibly without knowing it. Foreigners did the reverse during this period: they transferred 2,7 BEUR to Greek banks. Perhaps that is a coincidence; perhaps something could be read into it.
My own experience has been that it is never smart to do the opposite of what those are doing who are 'in the know'. If I saw Greeks moving money outside the country, I would think twice before I moved money into Greece.